The balance sheet for the partnership of Nina, Pinta, and Santa Maria at January 1, 2014 follows.The partners share profits and losses in the ratio of 3:2:5, respectively. Nina is retiring from the partnership.By mutual agreement, the assets are to be adjusted to their fair value of $540,000 at January 1, 2014.Pinta and Santa Maria agree that the partnership will pay Nina $135,000 cash for hers her partnership interest.There is no goodwill is to be recorded.What is the balance of Pinta's capital account after Nina's retirement?

Question

The balance sheet for the partnership of Nina, Pinta, and Santa Maria at January 1, 2014 follows.The partners share profits and losses in the ratio of 3:2:5, respectively.  Nina is retiring from the partnership.By mutual agreement, the assets are to be adjusted to their fair value of $540,000 at January 1, 2014.Pinta and Santa Maria agree that the partnership will pay Nina $135,000 cash for hers her partnership interest.There is no goodwill is to be recorded.What is the balance of Pinta's capital account after Nina's retirement?

Quizplus · Accepted Answer

After adjusting the assets to their fair value of $540,000, the total partnership equity would be $540,000 ($320,000 + $140,000 + $80,000). Since Nina is being paid $135,000 for her share, the remaining partnership equity would be $405,000 ($540,000 - $135,000). Pinta's share of the equity would be 2/10th of the remaining equity, or $81,000. Adding this to Pinta's existing capital account balance of $39,000 results in a total of $120,000. Therefore, the answer is (C) $120,000.

The Balance Sheet for the Partnership of Nina, Pinta, and Santa